Study: States, Feds Don't Target Transportation Spending

Money's tight. So why don't governments work to determine how to get the best bang for their transportation buck?

With states and localities still slogging through the wake of an economic downturn, and Congress focused on a new era of debt reduction, it would seem wise for governments to target their spending to areas where it will have its maximum return.

When it comes to transportation spending, though, that typically doesn't happen, according to a new study by the Eno Center for Transportation, a nonpartisan think tank.

The paper, which will be released Friday, comes as Congress continues to negotiate a long-term highway and transit bill. The latest extension expires at the end of the month.

The study's thesis is that all stakeholders would be better served if both the state and federal governments conducted rigorous economic analysis before spending money on transportation projects. Such studies could answer whether the benefit that a given project has to the economy would, over time, exceed its construction and maintenance costs. It would also help officials – when presented with limited money for multiple projects – decide which would do the most good for the economy.

It’s an argument that seems painfully obvious – which the author concedes – yet it isn't the norm in government. Even as the states and feds struggle to find money to pay for transportation projects, they typically don't conduct the planning needed to ensure they're getting the best return possible when they invest in infrastructure, argues author Nicolas Norboge, an assistant researcher at the Texas Transportation Institute.

He cites a 2010 GAO report that found only 11 states considered economic analysis very important when determining which projects to pursue. And a 2008 GAO report finds that “rigorous economic analysis is not a driving factor in most project selection decisions” when it comes to the federal government’s surface transportation program.

As Governing has noted in the past, there’s a growing chorus of transportation advocates and policy wonks who believe one of the most compelling arguments governments can make to voters when seeking transportation funding is the economic one. Citizens understand that a more efficient transportation network that facilitates commerce and minimizes losses associated with crashes and congestion is good for the economy.

But most federal surface transportation funding is distributed to states and localities based on formula grants, and not a process that targets investment. When governments fail to perform the studies needed to justify those conclusions, they may be undermining their case for transportation funding.

While the pending highway bill currently being negotiated in Congress has some reforms when it comes to promoting performance metrics and economic analysis, most funding would continue to be formula-based.

Historically, that’s how it’s always been done. “[W]hen it came to spending public dollars, it was often assumed that any expenditure on transportation infrastructure was worth the investment,” Norboge writes. In the three major federal surface transportation bills passed since 1990, he writes, "states were able to select projects that they felt were important (but) the federal government had few opportunities to direct funding to projects that were likely to have the most impact on the national economy.”

Norboge does identify some bright spots: the enormously popular federal TIGER grants include a Department of Transportation economic analysis in which a team prepared a cost-benefit study for each stage of a project before determining whether it should be eligible for funding.

But the paper notes that TIGER’s process isn’t perfect and may focus too heavily on the short-term benefits of the projects – like one-time construction jobs. It also gives an edge to shovel-ready projects, even though that status has little to do with the economic potential of a project. Critics including the GAO have also cited a lack of full transparency from the Department of Transportation in documenting how it selects TIGER projects.

He gives his highest marks to a handful of states – Indiana, Kansas, Michigan and North Carolina – that have started emphasizing economic analysis in their decision-making process. Kansas, for example, now only considers long-term job impacts when evaluating projects (politicians often emphasize one-time construction jobs when touting transportation spending, which some argue isn’t a particularly meaningful metric). That and other reforms helped get buy-in from the public for hikes on vehicle registration fees.

Still, the battle to emphasize economic impacts won’t be an easy one. Standardizing economic analysis methodology across state and federal government would be difficult, because each state would likely only support the method that is most advantageous to its own funding situation. Rural states may be unlikely to support such an effort, since they would likely be losers if funding was based wholly on those studies. And states don’t necessarily have the resources to conduct rigorous analysis and data collection.

Still, he sees states leading the push for change. "Because states often have a greater ability to improvise, they can serve as laboratories for public policy reform and set new examples for other states, localities, and the federal government," Norboge writes.